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AMERICAN unemployment has been rising rapidly lately. In
October and November alone, the US jobless figure
increased by 0.8 of a percentage point, a more
pronounced jump than any since 1980.

But while the rise is unusual for US standards, it is in the
international context that it truly stands out. Since the late
1960s, neither Japan nor Germany has experienced so
sudden a spike - apart from the period following German
reunification. Such a jolt is painful. But America's pink slips are also America's
strength. They remind us that the real work of recoveries does not happen in
political capitals. It happens in factories and offices. And an economy has to be
free to do that work. Only then can it make it through the darkness of winter to a
spring of growth and job creation.

"Everybody in Germany is talking about synchronous recession," says Wilfried
Prewo, of Hanover's chamber of commerce. "But the real question is: what about
synchronous recovery? That won't necessarily happen because we can't come
back so strongly." The German economy is not free enough for such a rebound.

But let us return, for the moment, to the US winter. American companies have
been making workers redundant non-stop for months and in some cases
dissolving themselves. There have been cuts everywhere, from old economy
mainstays such as Boeing and Ford to new economy enterprises such as
Excite@Home, the broadband cable group.

The result of this labour flexibility is that the US has been able to sustain
productivity growth at the outset of recession, something of which virtually no other
developed economy is capable. Because US laws make it relatively easy to
dismiss workers, companies do not have to waste negotiating time or cash on
buying workers out of contracts.

When recovery does come, they will have more cash to invest. Because Ford can
lose workers, it can also afford to bid for market share by selling cars interest-free.
What is more, there will also be cash in the till with which to rehire workers.
Economists who forecast a strong US rebound next year - and there are many -
say the advantages of such flexibility outweigh the blow of September 11.

For their part, workers in America have internalised this more hopeful side of
business life. They are distressed about their pink slips. But they are also
confident that, in time, they will find other jobs.

This confidence comes from experience. Since the war Americans have always
been able to find a new job, sooner or later. US unions are still powerful in some
industries. At this moment, AFL-CIO steelworkers have erected a Town of Tents
outside Washington to evoke the Hoovervilles of Depression days. But the union's
theatre is not resonating because most Americans cannot recall a trough like the
Great Depression.

No such virtuous employment cycle exists in Japan, where unemployment has
never, at least on paper, peaked in the way it is doing in America. For a long time,
companies wasted precious capital by retaining inefficient workforces. Now those
same companies are sacking workers but the structural problem has grown so
much that these actions are insufficient.

Japanese monetary policy is still getting most of the blame for Japan's decade of
winter. Other countries press the Bank of Japan to inject yet more liquidity into the
system. But the complement of a freer jobs policy would do much to increase
economic potential.

Germany's situation is also troubling. The governments of Helmut Kohl and
Gerhard Schroder have taken steps to sustain their workforce - ranging from
multi-billion D-Mark retraining schemes to support for intricate job-sharing
programmes. In the 1990s, Volkswagen seemed to spend as much time
engineering work programmes as it did engineering cars.

But when it comes to firing, Germany is not much farther ahead than it was eight
years ago, when observers began remarking on its structural problems. Indeed,
as Mickey Levy of Bank of America notes, many of Europe's re-employment
projects have exacerbated labour market inflexibility. Further training for a specific
trade only worsens the plight of a dismissed worker whose industry has moved
its production to cheaper climes.

"Everybody looks to central banks to solve all problems through monetary policy
but they are not capable of doing so. Ditto fiscal policy," says Mr Levy. The real job
of government in a time of recession is to get out of the way.

There are lessons in this picture for all three countries. For the US, the message
is: do not do anything to disturb the dynamism of the labour force. This means that
the well intentioned plan to expand benefits for the unemployed in "economic
growth and security" legislation is wrong-headed. For while nationally subsidised
unemployment schemes may not target specific companies, they do throw sand
into the gears of dynamic economies.

And while the income tax cuts in the proposed legislation are valuable, its
short-term stimulus measures, such as tax holidays on social security pension
payments, are less important. The White House's economic team openly
acknowledges this. But it is holding its collective nose and proceeding. Even Bush
administration free-marketeers are not immune to "Europe think".

For Germany, or Japan, the message is: freer labour policies are crucial to future
growth. Alan Greenspan allowed as much in his recent remarks on the struggling
euro. It is an old truth but worth remembering: "hire and fire" also means "fire to
hire". The best insurance for growth is creating a culture where workers believe
that spring will come and, with it, a new
job.

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